Winding Down To TRIA Sunset

Could government-backed terror insurance soon be a thing of the past? In three months, the Terrorism Risk Insurance Act (TRIA) is set to expire unless Congress agrees to extend the backstop. Under TRIA, the government covers up to $100 billion in insured property losses stemming from an attack on U.S. soil.

“If we have a major terrorist attack in early 2006 and TRIA has expired, it would make the government’s response to Hurricane Katrina look like a well-oiled machine,” warns Robert Hartwig, chief economist at the Insurance Information Institute, a D.C-based insurance trade group. “And there could very well be no terror coverage in 2006 if Congress doesn’t act soon,” he says, adding that natural disasters have taken precedence in recent weeks.

The program is viewed by many commercial real estate sources as vital since the private terrorism insurance market dissolved after the 9/11 attacks. It took TRIA — which was passed in November 2002 — to smooth out the volatile market by making it illegal for any property and casualty insurer to exclude terror coverage in their U.S policies.

While there are no guarantees that TRIA will be renewed at all, sources are hopeful that Congress will see the need for extended coverage and act on it. Congress planned to hold hearings on TRIA this month, but the hurricanes pushed those meetings into October.

One Capitol Hill source believes that TRIA will be extended for a one-year period though in a pared-down form. “It looks like they will renew it for a shorter period like one year. But the question is how much time [Congress] will have to re-engineer the legislation before it expires,” says the source, who asked not to be named.

The Bush administration favors a limited version of TRIA that puts more of the exposure on private insurers. Insurers, for their part, are happy with TRIA’s current $100 billion threshold; however, their primary mission now is to see TRIA renewed in any form.

On Tuesday, for example, members of the Commercial Mortgage Securities Association (CMSA) converged on Capitol Hill to urge Congress to renew TRIA. CMSA President Margie Custis says that the commercial mortgage backed securities market would suffer without TRIA. The reason, she says, is that the backstop allows borrowers to purchase affordable terrorism insurance. That, in turn, keeps investors in the market and makes capital available for the commercial real estate industry.

“Since [TRIA’s] passage, the capital markets have continued to invest heavily in commercial debt securities and this year’s total investment is expected to exceed $130 billion,” adds CMSA Chief Executive Officer Dottie Cunningham. “This level of investment has been one of the key drivers behind the continued growth of the commercial real estate industry, which has helped boost the overall U.S. economy over the past four years.”